Warren Plans Information-Sharing With States on Non-Bank Lenders

By Carter Dougherty -
Jan 4, 2011

Elizabeth Warren, the White House
adviser assigned to set up a U.S. consumer financial-protection
bureau, plans to share information with state supervisors to
streamline oversight of non-bank firms such as payday lenders.

The bureau will exchange information about banks and non-
bank financial companies normally examined by state regulators
under a memorandum of understanding announced today by the U.S.
Treasury Department, which is housing the agency until it begins
operation in July.

Information-sharing “will help states and the Feds” and
should be welcomed by the lenders, said Thomas Gronstal, Iowa’s
superintendent of banking and chairman of the Conference of
State Banking Supervisors. “What you don’t want is the state
coming in January and the Feds in February,” Gronstal said in
an interview yesterday.

Warren, 61, the Harvard University professor appointed by
President Barack Obama in September, is establishing oversight
of non-bank lenders under the Dodd-Frank Act. The regulatory law
brought the firms under the new agency’s watch after consumer
groups accused them of taking advantage of borrowers through
high interest rates or hidden fees.

The agreement to have the consumer bureau share information
with banking supervisors follows the pattern of Warren’s
outreach to state attorneys general, said Arthur Wilmarth, a law
professor at Washington’s George Washington University.

“Politically, supervisors are supporters rather than
opponents,” Wilmarth said in an interview yesterday. “And they
can solve staffing problems that Warren probably cannot.”

Warren, who has promised tough regulation of non-bank
firms, said in a statement that the agreement “allows us to
bring thousands of financial service providers out of the
shadows and to begin the process of ensuring that all lenders
comply with the same basic rules.”

States’ Expertise

The information-sharing agreement will allow the consumer
bureau to take advantage of states’ expertise in ensuring U.S.
rules are being followed, Gronstal said. When state examiners
turn up violations they will be able to pass them along to
attorneys general or the consumer bureau for enforcement action.

“The states have been, for the most part, doing licensing
and regulation for a long time, so we have quite a bit of
experience,” Gronstal said.

The new consumer-protection agency, which will operate as
an independent unit within the Federal Reserve, may focus on
non-bank financial firms that work in multiple states, said Mark
Kaufman, Maryland’s commissioner of financial regulation.

“I think there will be federal examiners of some scope,”
Kaufman said in an interview. “It will not be of the scope to
supplant state examiners.”

Federal-state cooperation could help bring uniformity to
regulation of non-bank lenders, which “varies wildly by
state,” said Jean-Ann Fox, director of financial services for
the Washington-based Consumer Federation of America.

There were 71,121 non-bank financial firms in the U.S. at
the end of 2009, about 10 times the number of banks and thrifts,
according to a survey conducted by the state supervisors. There
are also more than 121,000 mortgage originators, according to a
separate state survey.

‘So Large’

“The numbers are so large that it would be absolutely
impossible for a federal agency to regulate and supervise those
entities without help,” said Chris Stinebert, president and
chief executive officer of the American Financial Services
Association, a Washington-based group representing companies
that offer installment credit and auto loans.

Stephen Altobelli, a spokesman for the Hackensack, New
Jersey-based Financial Service Centers of America, which
represents check cashers, small-dollar lenders and some title
lenders, said the industry welcomes any state-federal
cooperation that minimizes overlap.

“One concern we have with the CFPB is that we are layering
on a level of federal bureaucracy, beyond what the states do,”
Altobelli said.